Correlation Between Aluminum Futures and Platinum

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Can any of the company-specific risk be diversified away by investing in both Aluminum Futures and Platinum at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Aluminum Futures and Platinum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Aluminum Futures and Platinum, you can compare the effects of market volatilities on Aluminum Futures and Platinum and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Aluminum Futures with a short position of Platinum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aluminum Futures and Platinum.

Diversification Opportunities for Aluminum Futures and Platinum

AluminumPlatinumDiversified AwayAluminumPlatinumDiversified Away100%
0.49
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Aluminum and Platinum is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum Futures and Platinum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Platinum and Aluminum Futures is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Aluminum Futures are associated (or correlated) with Platinum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Platinum has no effect on the direction of Aluminum Futures i.e., Aluminum Futures and Platinum go up and down completely randomly.

Pair Corralation between Aluminum Futures and Platinum

Assuming the 90 days trading horizon Aluminum Futures is expected to generate 1.25 times less return on investment than Platinum. But when comparing it to its historical volatility, Aluminum Futures is 1.69 times less risky than Platinum. It trades about 0.06 of its potential returns per unit of risk. Platinum is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  97,210  in Platinum on November 25, 2024 and sell it today you would earn a total of  1,480  from holding Platinum or generate 1.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Aluminum Futures  vs.  Platinum

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -505
JavaScript chart by amCharts 3.21.15ALIUSD PLUSD
       Timeline  
Aluminum Futures 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Aluminum Futures are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Aluminum Futures is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb2,4502,5002,5502,6002,6502,700
Platinum 

Risk-Adjusted Performance

Insignificant

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Platinum are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Platinum is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb9209409609801,0001,0201,0401,060

Aluminum Futures and Platinum Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.32-2.49-1.65-0.820.00.821.692.553.424.28 0.050.100.150.200.250.300.35
JavaScript chart by amCharts 3.21.15ALIUSD PLUSD
       Returns  

Pair Trading with Aluminum Futures and Platinum

The main advantage of trading using opposite Aluminum Futures and Platinum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aluminum Futures position performs unexpectedly, Platinum can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Platinum will offset losses from the drop in Platinum's long position.
The idea behind Aluminum Futures and Platinum pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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